A euro crisis on German ice

Published in Business Spectator (Melbourne), 18 July 2013

General elections are meant to pick a government and election campaigns to discuss the most important issues facing a country. If that’s your definition of an election, you may wonder whether Germany is really heading to the polls on September 22.

Seldom has the run-up to an election been as lacklustre as to this year’s vote in Germany. Just nine weeks ahead of polling day, most Germans have better things to do than to think about politics. They go on holidays, discuss the appointment of Pep Guardiola as manager of Bayern Munich football club, or just enjoy the sudden arrival of proper summer weather after an unusually cold spring.

Meanwhile, the political parties are not giving voters much reason to really engage with them and their manifestos. Their election pledges are all too easily recognised as gimmicks that will never be implemented, and on the biggest issues of the day, the future of Europe and the euro, there is no debate between established parties.

Foreign observers might naively assume that as economic data from Europe’s periphery deteriorate, Germany would discuss the implications. After all, its exposure to Southern Europe is huge. If only a part of German lending to the rest of Europe had to be written off – say after a sovereign default, a banking crisis, or both – this would inflict pain on German investors and taxpayers. German savers are already paying for the crisis because the European Central Bank’s policies have made decent interest income a distant memory.

So there are enough reasons to pay attention to the euro crisis and consider ways out of it. But fight an election campaign on these crucial issues – you must be kidding.

It is as if Germany’s mainstream parties – Christian Democrats, Social Democrats, Greens and Free Democrats – are forming a cartel to prevent real political discussions. None of them are willing to draw any attention to Europe as a topic. Little wonder as every single parliamentary decision on the euro crisis has been supported by all these parties. There is no way in which the opposition could now credibly blame the government for the very policies it has always supported.

There is a second reason for the cross-party armistice ahead of the election. A party challenging the consensus on Europe has emerged, the ‘Alternative for Germany’ party. The Alternative is currently polling at 2-3 per cent – where all the other parties would like them to remain. In order not to give Alternative any extra publicity, the political cartel refuses to engage on the issue of Europe, effectively pretending it does not exist.

To round off the boredom ahead of the election, polls have been stable for months, if not years – Chancellor Angela Merkel is virtually guaranteed to remain in office. The only uncertainty remains about her coalition partner (although it makes little difference in practice).

What is strange about this sleepwalk to the polls is not how it has paralysed proper political debates within Germany but how it has paralysed proper political debates within Europe.

Seasoned observers may remember that this is not the first time that the euro crisis has been held up by German domestic considerations. Remember how the first Greek rescue package was agreed on May 10, 2010, and not earlier when everybody knew it was coming. That was because Germany’s most populous federal state, North Rhine-Westphalia, first had to go to the polls before a bailout could be agreed (Will German voters cut the cord?, May 6, 2010). Chancellor Merkel was too scared to tell voters the truth before the election, making Europe wait for a decision. Not that it helped Merkel’s party in the end, they lost the state regardless.

What we are currently observing follows the same pattern. Around the eurozone, there are issues that urgently need to be solved. The Portuguese government has just avoided collapse as consensus on austerity measures is faltering. Greece will need a second haircut. Italy’s debt dynamics are deteriorating. Cyprus needs more help after its initial bailout package. And these are only the most pressing problems.

Yet just as there is a cartel in German politics not to talk too loudly about Europe, there seems to be an equal reluctance in Europe to tackle any of these issues before the German elections. Every European politician knows that he will still have to deal with Angela Merkel after the election, and as German chancellor she will remain the most crucial player in European politics. Because any discussion on Europe might disturb her sleepwalking election campaign, potential issues are closely kept under the lid – for now. Nobody dares to interfere with Merkel’s campaign for re-election, not even other European leaders.

Bizarrely, these combined domestic and international circumstances mean that within Germany the euro crisis is not allowed to become an issue. And outside Germany, nobody feels powerful enough to challenge Merkel.

This ceasefire will last until September 22 when Germany finally goes to the polls. Back in January, I predicted that this is how the year would play out (Drab and dull Merkel will spark German mania, January 17). At the time I wrote: “It will be the most boring election campaign with the most predictable outcome you can imagine.” If only I could forecast the lotto numbers with the same precision.

So the German elections won’t change the government – but they will change the dynamics of the euro crisis.

Until election day, nothing in the euro crisis will happen. In fact, it will look as if the euro crisis has gone to sleep. But postponed problems will still have to be solved eventually, one way or another. And this is why after September 22, we will learn about the next Greek haircut, the next Cypriot bailout package and the future of the eurozone in general.

To those poor German voters going to the polls, elections may have never looked more pointless. Whoever they vote for won’t make a difference. But it’s good they are finally going to the polls – if only so that Europe can end its euro crisis summer holiday.

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